(RTTNews) - Investors are selling stocks in droves in morning trading on Monday amid continued concerns about the health of the credit markets. Following the passing of the government’s $700 billion bailout bill on Friday, investors remain worried that the bill will not be able to stem the liquidity issues.

Earlier in the day, the Federal Reserve revealed the latest in a series of steps taken to help keep credit markets functioning as stress on global markets intensifies. The Fed announced that it is “substantially increasing” the size of the Term Auction Facility auctions, up to $150 billion for both the 28 and 84 day auctions.

The U.S. central bank is also offering banks interest on their reserves, which allows the Federal Reserve to continue supplying money while maintaining the federal funds rate near its target, not allowing it to go much lower.

“Together these actions should encourage term lending across a range of financial markets in a manner that eases pressures and promotes the ability of firms and households to obtain credit,” the Fed said in a statement. “The Federal Reserve stands ready to take additional measures as necessary to foster liquid money market conditions.”

In other news, Wachovia (WB) and Wells Fargo (WFC) are planning to move forward with their merger plans after an appellate court reversed an order by New York State Supreme Court Justice Charles Ramos, who ruled Saturday that Citigroup’s (C) competing offer for Wachovia should get more time for review.

Wells Fargo is offering $14.8 billion outright for Wachovia. Citigroup’s earlier offer of $2.8 billion for parts of Wachovia includes proposed loan backing from the government’s Federal Deposit Insurance Corporation (FDIC).

In recent trading, the major averages are seeing further downside, with the averages all setting fresh intraday lows. The Dow is currently down 407.00 at 9,918.38, the Nasdaq is down 104.45 at 1,842.94 and the S&P 500 is down 54.30 at 1,044.93.

Sector News

Resource stocks are turning in some of the worst performances, hurt by a drop in commodity prices. Steel stocks are among the biggest losers, as investors worry that a global slowdown will hurt demand. The Amex Steel Index is plunging 16.1 percent, extending a four-month downtrend. Earlier in the day, the index set a two-year closing low.

Among steel stocks, Arcelor Mittal (MT) is posting a substantial loss after Deutsche Bank downgraded its rating on the stock to a Hold rating and trimmed its forecast for steel prices. Shares of the steel producer are down 17.4 percent after setting a two-year intraday low earlier in the session.

Oil and oil service stocks are also seeing significant selling pressure after the price of oil fell below the $90 a barrel mark. The Amex Oil Index is down 8.2 percent, compared to a 14.1 percent decline by the Philadelphia Oil Service Index. Both indexes set new intraday lows for the year on the declines.

Despite the drop in oil prices, airline stocks are sharply lower as well. The Amex Airline Index is down 11 percent, extending the declines seen in the previous two sessions. Earlier in the session, the index set a two-month intraday low.

As investors continue to worry about the health of the credit markets, the financial sector is also showing notable weakness, including both bank and brokerage stocks. The KBW Bank Index is down 6.3 percent, while the Amex Securities Broker/Dealer Index is seeing a decline of 6.6 percent.

Other stocks that are seeing notable weakness include housing, chemical and wireless stocks. The Philadelphia Housing Index is down 7.8 percent, the S&P Chemical Index is down 7.3 percent and the Amex Wireless Index is down 6.4 percent.

Stocks Driven By Analyst Comments

Among individual stocks, RF Micro Devices (RFMD) is seeing significant selling pressure in morning trading. A Citigroup analyst downgraded the stock to a Sell rating from a Hold rating. The analyst also cut the stock’s price target to $2.50 from $3.80.

Shares of the chipmaker are currently trading down 7.5 percent, adding to losses posted in the previous two sessions. Earlier in the day, the stock set a two and a half month intraday low.

Adobe Systems (ADBE) is also showing considerable weakness after a Friedman, Billings, Ramsey analyst downgraded the stock to a Market Perform rating, stating that the tough economy could dampen sales of its soon to be released Creative Suite 4 software. The stock is falling 5.5 percent, setting a six-month intraday low.

On the other hand, Supervalu (SVU) is showing notable strength after a Jefferies analyst upgraded the stock to a Hold rating from Sell rating. The analyst stated that the stock is a more attractive price following its recent decline. Shares of Supervalu are up 0.5 percent, climbing off of a multi-year closing low set in the previous session.

Other Markets

Stock markets across the Asia-Pacific region tumbled on Monday on fears that the U.S. bailout plan might not stem the financial crisis that has spread to Europe. Japan’s Nikkei 225 index opened lower and declined steadily throughout the session, closing down 4.3 percent. The index plunged to its lowest levels in nearly five years.

On the economic front, the Bank of Japan kicked off its two-day monetary policy meeting on Monday in Tokyo. The central bank will announce its interest rate decision on Tuesday. The bank is widely expected to keep interest rates on hold at 0.50 percent for the 23rd consecutive month.

The major European markets are tumbling on Monday in reaction to the problems at the region’s banks. Fortis announced today an investment from French banking giant BNP Paribas after a Belgian-Luxembourg government-led bailout plan did not effectively stall the damage. German real estate financing company Hypo Real Estate announced that the German central bank and financial regulator BaFin have agreed to extend an additional secured credit line of 15 billion euros in addition to the 35 billion euros promised earlier.

The French CAC 40 Index and the German DAX Index are receding 7.7 percent and 6.5 percent, respectively, while the U.K.’s FTSE 100 Index is slipping 4.5 percent.

Meanwhile, treasuries are showing considerable strength, as investors look to the safety of government backed bonds. Subsequently, the yield on the benchmark ten-year note is currently down 13 basis points at 3.514 percent.

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Posted in Categories: Economy, Eurozone, Japan, Releases, USA.

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